Australian office vacancy rates record improvements in Q1

Sub-lease vacancy fell 1.7% in Sydney CBD and 2.6% in Melbourne CBD.

Net office absorption in Australia’s four major CBDs eased in Q1 2022 after three positive quarters. 

According to Dexus Research, the decline can be attributed to a few large organisations either contracting or offering sublease space in Sydney and Melbourne. On a positive note, smaller occupiers have remained active across all CBD markets, being able to make decisions quicker and with less legacy cost pressures. 

Here’s more from Dexus Research:

Leasing enquiry data has been positive with the number of active tenant briefs rising to pre-pandemic levels. Larger organisations are becoming more active in the pre-commitment market, with several new leases being signed on new developments. Most promisingly, many organisations are committing to more space than before and signalling a preference for prime quality space. 

While physical occupancy rates remain low, workers are starting to make their way back into CBDs as more offices open. There remains a discrepancy in employee and employer expectations regarding the frequency with which staff will be in the office. Physical occupancy was recorded at 41% in Sydney CBD and 32% in Melbourne CBD, though foot traffic varies greatly within precincts in office markets. 

Vacancy rates appear to have turned the corner, falling in Sydney CBD and Melbourne CBD in the March quarter, mainly due to stock withdrawals. Sub-lease vacancy also fell in both markets (1.7% and 2.6% respectively) as companies took back space. There is also a notable difference in vacancy rates across precincts, with Sydney’s Core having significantly less vacant space (10.5%) than the city’s other precincts, indicating that occupiers prefer areas with greater amenity. Vacancy in the Brisbane and Perth CBDs also fell, with larger occupiers driving momentum in these markets. 

Effective rents rose across all CBD markets as face rents rose, although incentives remain elevated. Yields in Sydney and Melbourne fell 10 basis points in Q1 2022, while staying flat in Perth and Brisbane.